Store wars could be averted by a Myer-DJs merger

Jane Harper, James Dowling
January 25, 2013
Herald Sun

THEY have been at the heart of the store wars for more than a century, but could it be time for Myer and David Jones to lay down arms and join forces?

It may seem the unlikeliest of alliances, but Australia’s leading department stores could find there’s much to be gained in keeping your enemy close, a new report has argued.

A merger between the two stores is just one of the unexpected suggestions included in investment bank Morgan Stanley’s 10 Potential Surprises for 2013 report.

And while neither store is believed to have formally broached the idea of a merger, Morgan Stanley analyst Thomas Keirath argues there are millions of good reasons why they should.

Mr Keirath said a combined Myer and David Jones could save the stores more than $90 million, partly because they would no longer have to compete with each other so heavily through discounting.

The army of popular overseas retailers, such as Zara and Topshop, making a splash in Australia – as well as the rise of online shopping – is another powerful argument for Myer and David Jones to work together.

“The department stores now compete more with others than just each other,” Mr Keirath said.

“Historically David Jones and Myer have been the fiercest of competitors, but we don’t think this is the case any more.”

Both Myer and David Jones could do with a boost. Myer reported a 13 per cent slide in 2012 net profit, while David Jones’s full-year profit plummeted by a huge 40 per cent.

But a merger could present as many problems than it would solve. Both Myer and David Jones are locked into long leases in prime retail spots, so shopping centre landlords would be unlikely supporters.

And a merged Myer and David Jones would corner about 60 per cent of the high-end cosmetics market, prompting questions about competition.